HW6 12-2-09 - ECO 304K INTRO MICRO Fall 2009 Hickenbottom...

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ECO 304K INTRO MICRO Fall 2009 Hickenbottom HOMEWORK #6 (Due December 2 nd at 1pm) 1. The production of this good generates $5 per unit in damage to those living next to the plants that produce it. The market for this good has the following demand schedule and the 50 firms that produce it. Each has the following cost schedule, generating the following market supply. Market Demand Firm Costs Market supply P Q P Q Q TC Q P 20 0 9 550 0 34 50 4 19 50 8 600 1 38 100 5 18 100 7 650 2 43 150 6 17 150 6 700 3 49 200 7 16 200 5 750 4 56 250 8 15 250 4 800 5 64 300 9 14 300 3 850 6 73 350 11 13 350 2 900 7 84 400 12 12 400 1 950 8 96 450 14 11 450 0 1000 9 110 500 16 10 500 10 126 a) Explain why, if the firms are perfectly competitive, P=12 is the purely competitive equilibrium price in the short run. Find the equilibrium firm and market output and explain why this is also the LR equilibrium price. (1 points) b) Explain why the level of output in (a) is inefficient. (1 point) c) Explain why charging a tax of $15 per firm (not per unit) would not make the
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This note was uploaded on 08/24/2011 for the course ECO 304K taught by Professor Hickenbottom during the Fall '10 term at University of Texas at Austin.

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HW6 12-2-09 - ECO 304K INTRO MICRO Fall 2009 Hickenbottom...

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